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ECB urged to look through oil slump even as inflation falters

ecbFRANKFURT--The European Central Bank should look through a slump in oil prices and stick to its stimulus programme even if headline inflation is falling below its forecasts, the chief economist of Germany's Bundesbank said.
  A six-week fall in oil prices is keeping a lid on euro zone price growth, threatening the ECB's June forecasts and raising questions about the effectiveness of its 60-billion-euro a month money-printing programme, launched in March to revive inflation.
  Jens Ulbrich, head of the Bundesbank's economics department, said the pace of price growth was falling behind schedule but that the ECB should focus on a continued improvement in core inflation, which excludes energy and unprocessed food.
  "The path of inflation is slightly lower than we have expected in the June forecast," Ulbrich said in an interview with Reuters. "This is mainly due to oil prices falling again. However, the core rate still points upwards."
  The ECB expects headline inflation of 0.3 percent this year, 1.5 percent in 2016 and 1.8 percent in 2017. Consumer prices growth came in at a meagre 0.2 percent in the euro zone last month, unchanged from June and well below the ECB's target of just below 2 percent. Core inflation rose to 0.9 percent, however, from 0.8 percent in June.
  Ulbrich said the recent decline in energy prices was mainly due to an increase in oil supply and was positive for growth in the euro zone, which is a net importer of oil.
  "The bulk of the recent decline (in oil prices) can be ascribed to supply-side factors and that's also true of the latest inflation figures," Ulbrich said. "As regards monetary policy, my preferred approach is to look through this unless we see second round effects on the economy."
  He expected the ECB's bond-buying programme to continue to push up prices and said any decision on further stimulus depended on whether economic data diverged from the ECB's projections. The ECB has said it will run its asset-purchase programme, which focuses mainly on government bonds, at least until September 2016 and chief Mario Draghi has left the door open to more stimulus if needed.
  The powerful German central bank had long opposed the launch of QE but has become more conciliatory in recent months.
  "It is important to see how the economic data comes in compared with our expectations," Ulbrich said. "Real economic indicators and the inflation path are still close to the baseline of the June forecast."

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